Lloyd’s Insurance Market originated in a coffee house belonging to a certain Edward Lloyd in 1688, which was the haunt of those concerned with maritime trade. For many years business transacted at Lloyd’s was confined to marine insurance. In the nineteenth century, however, a large non-marine business began to be built up, particularly business from overseas, and Lloyd’s is now a major international market in this field.
This organisation is unique in the world. The Council of Lloyd’s, established under the 1982 Lloyd’s Act, is the governing body and activities under its jurisdiction are governed by Acts of Parliament. Statutory regulations aimed at preserving the solvency and integrity of Lloyd’s underwriters differ from those applicable to insurance companies, though the intent is the same.
Unlike most of its competitors in the insurance and reinsurance industry, Lloyds is not a company. The Society of Lloyd’s was incorporated by the Lloyd’s Acts 1871-1982. The systems used for issuing policies, collecting and accounting for premiums, and dealing with claims also differ from those adopted by insurance companies. Only accredited Lloyd’s brokers can place insurance at Lloyd’s. The Corporation provides the premises and all the facilities for those transacting business within its jurisdiction, together with the regulatory controls. The actual business is not transacted by the Corporation of Lloyd’s but by underwriting members on the one hand and Lloyd’s insurance brokers on the other.
Underwriting members are individuals and their liability is unlimited. However, it would be impossible for all those who are underwriting members of Lloyd’s to transact the business individually and thus they are formed into syndicates in the charge of the person who is responsible for the transaction of the business on their behalf. This person has complete power of attorney on behalf of the members of the syndicate. Naturally, an underwriter with power of attorney needs to have assistance and this is provided by his accredited deputies. Those persons actually accepting insurance have of course to comply with rules and regulations and submit themselves to the disciplines of the Corporation.
The Lloyd’s insurance broker is the other part of the market and is also subject to rules and disciplines. He has to be accredited and membership is not granted freely. Only a Lloyd’s broker can enter the Underwriting Room and transact business therein. The ‘Room’, as it is called, is that place where the underwriters sit at ‘boxes’ and transact the business. It is normal for Lloyd’s brokers to be either limited companies or partnerships rather than individuals, and the chief executive of such a company or partnership is the broking member. The staff of the company with broking powers are known as ‘substitutes’. There is in addition a category entitled ‘messengers’ who are allowed to take messages into the Room to give the broker but who are not empowered to conduct any insurance broking.
Lloyd’s broking offices range from the giant companies through medium-sized operations, to the very smallest broking firms. Many large and medium-sized offices employ specialists and operate a number of separate departments. Small firms may specialise in one class of business or another and operate with unique trade syndicates. For instance, one broking house concentrates on professional indemnity business, many others on reinsurance, yet others on the hotel and catering trade, and so on. Some small firms, however, operate a general business.
While there is a principle that transactions have to be carried out in the Room itself there are a few exceptions to this, it would be totally impractical for Lloyd’s to transact motor insurance business, particularly for individual policyholders, in this way. Certain motor insurance syndicates have overcome this problem by allowing provincial insurance-broking firms to deal direct with them but requiring that the premium is guaranteed by a Lloyd’s broking firm. Some of these syndicates have actually set up offices in provincial cities and the local insurance brokers deal direct with these offices. This method enables syndicates to compete with insurance companies having local branches.